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Management Controls of Freddie Mac

In: Business and Management

Submitted By steveking
Words 1742
Pages 7
Freddie Mac Accounting Scandal On January 22, 2003, Freddie Mac, a government-sponsored enterprise created to expand the secondary mortgage market in the USA, announced to the public that its financial results for the past three years will be restated. These restatements were called upon by the revaluation of certain accounting policies previously used by management in conjunction with audit firm, Arthur Andersen. The restatement saw a cumulative increase in the retained earnings of the firm totaling $5 billion dollars, and regulatory core capital also increase by $5.2 billion dollars. This announcement came after an extensive investigation of the company by the OFHEO (Office of Federal Housing Enterprise Oversight) in collaboration with the SEC and PricewaterhouseCoopers, which was the audit firm during 2003. This investigation was initiated in June 2003 after the retirement of former Board Chairman and CEO Leland Brendsel, the termination of former president and COO David Glenn, and the resignation of former Executive VP – CFO Vaughn Clarke. Throughout the course of the investigation the full extent of the fraud was uncovered and fines totaling $125 million dollars were issued. The following report outlines the incentive management had in perpetrating fraud, the methods in which it was perpetrated, as well as how it went on so long without being unveiled.
Why Did They Do It? Throughout the 1990s, Freddie Mac promoted itself to stakeholders as a company with steady growing profits, gaining the nickname “Steady Freddie”. During this period the company’s corporate culture took a drastic change in order to display this image of a steady growing company, even if the means to present this image failed to meet the company’s obligations to the public. This corporate culture took a “tone at the top” approach, resulting in extensive (and often improper) methods to…...

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